Preview: Another Week, Another Banking Stress Test
During the boom of the U.S. banking system during the previous decade, investors were rewarded with hefty capital gains and massive chunks of cash in the form of common stock dividends.
As we fast forward to the present, shareholders of these banks are yearning and thirsty for a return to the cash-rich days. With the release of the Federal Reserve's Comprehensive Capital Analysis and Review (CCAR) results on Thursday afternoon, investors will learn if the largest U.S. banks will be allowed to return more capital to shareholders. Despite the upward trajectory of bank profits in recent years, banks and regulators are still haunted by memories of the massive liquidity crisis almost five years ago.
The CCAR results will detail each bank's capital positions assuming no additional capital actions plans (just like last week's Dodd-Frank stress test results), as well as account for the impact of any proposed capital action plans (increases in dividends or share repurchase) that each bank has submitted for approval. Given the stigma of banks having to cut dividends, the Fed will only approve capital plans that do not bring the bank's capital levels to a dangerously low level under a global economic downturn.
After last week's Dodd-Frank stress test results showed consistent capital ratio improvement year over year for almost every bank, investors' expectations for dividend growth and increased share repurchase capacity have crept higher. Here is a breakdown of what each bank proposed during last year's CCAR process:
Click on the name of each company to see a preview of this year's results:
The Big Four | |
Company Name | 2012 CCAR Capital Actions |
Did not request a dividend increase or new buyback approval. | |
Approved: Increased dividend and share buybacks. | |
Approved: Increased dividend and share buybacks. | |
Denied: Increased dividend. | |
Regional Banks | |
Company Name | 2012 CCAR Capital Actions |
Approved: Increased dividend and redeemed trust preferred securities. | |
Approved: Repurchase of preferred stock from TARP. | |
Denied: Increased dividend. | |
Approved: Share buybacks. Later increased dividend. | |
Did not request a dividend increase or new buyback approval. | |
Approved: Increased dividend and share buybacks. | |
Approved: Increased dividend and share buybacks. | |
Others | |
Company Name | 2012 CCAR Capital Actions |
Approved: Increased dividend and share buybacks. | |
Approved: Use of cash on acquisition of Morgan Stanley Smith Barney. | |
Approved: Increased dividend and share buybacks. | |
Approved: Share buyback plan. Did not request a dividend increase. | |
Did not request a dividend increase or new buyback approval. | |
Approved: Increased dividend and share buybacks. | |
As the most talked-about bank out there, all eyes will undoubtedly be on Bank of America's stress test results. Regardless of the outcome, there are significant challenges still ahead for this megabank, so it's critical to have a solid understanding of the business before adding B of A to your portfolio. In The Motley Fool's premium research report on B of A, analysts Anand Chokkavelu, CFA, and Matt Koppenheffer, Financials bureau chief, lift the veil on the bank's operations, including detailing three reasons to buy and three reasons to sell. Click here now to claim your copy.
The article Preview: Another Week, Another Banking Stress Test originally appeared on Fool.com.
David Hanson owns shares of Goldman Sachs. The Motley Fool recommends American Express, Goldman Sachs, and Wells Fargo. The Motley Fool owns shares of Bank of America, Citigroup, Fifth Third Bancorp, JPMorgan Chase, KeyCorp, PNC Financial Services, and Wells Fargo. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
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